Financial Behavior and the Misconception of Financial Inclusion
33 Pages Posted: 1 Dec 2020 Last revised: 9 May 2022
Date Written: April 19, 2022
We explore the association between the different conceptualizations of financial inclusion and several financial behaviors identified as improving financial wellbeing. We analyze the heterogeneity of financial inclusion and sound financial behavior, using nationwide data from the 2018 National Inclusion Survey of Mexico. The empirical strategy considers five degrees of financial inclusion: access to banking infrastructure, holding products opened by a third party, holding one financial product, holding more than one product, and using and comparing financial products. We analyze the association between the definitions of financial inclusion and seven financial behaviors: keeping a budget, having an emergency fund, making ends meet, buying what one can afford, paying bills on time, good use of savings, and setting financial goals. We control for individual characteristics that have been proved to explain financial inclusion and financial behavior. Our results show that the association between sound financial behavior and financial inclusion is not straight. In general, individuals who are financially included report better financial behavior, but it depends on the degree of financial inclusion. People who only hold one financial product opened by a third party do not report better financial behavior compared to unbanked individuals. Similarly, access to the banking infrastructure, by itself, does not improve inclusion to the banking system. Acquiring one or more financial products and using them represent sequential degrees of financial inclusion and are related to better financial behavior. In addition, the association between financial inclusion and different financial behaviors is not homogeneous; buying what one can afford is a behavior mostly unrelated to financial inclusion. Sound financial behavior is associated to financial inclusion mainly when households have the opportunity, the knowledge or ability, and the motivation to use and execute a behavior that interacts with the financial system.
Keywords: Household finance, Financial inclusion, Financial behavior
JEL Classification: G2,O1
Suggested Citation: Suggested Citation